Salient to Investors:
Shane Oliver at AMP Capital Investors said he was not worried until this week because things are much different in China than expected and potentially pose risks for global growth. Oliver said we relied on the Fed and China so much over the last few years that any signs that either might be less supportive is taken negatively – we got both last week.
Investors and economists from Barclays to HSBC are lowering their outlook for China and warn growth may fall short of the government’s target of 7.5 percent.
Darius Kowalczyk at Credit Agricole CIB said China was responsible for a third of global growth in 2012 so the world economy would suffer from China’s slowdown as it has been adding more to global growth than any other economy. Kowalczyk said commodity demand would suffer in particular and Asian markets relying on China for exports growth would be hit.
David Hensley at JPMorgan Chase said concerns about China getting it wrong threatens global financial markets.
Tim Condon at ING said commodity exporters, with a double-whammy of falling exports and prices, are among those likely to suffer the most from a weaker China. Brazil, South Africa and Australia all count China as their biggest trading partner. Condon said a weakening in China to 7 percent would likely force a response, says ING’s Condon.
China is more reluctant than in the past to loosen monetary or fiscal policies to check an economic slowdown. Stephen King at HSBC said this reflects a focus on quality of growth rather than quantity. HSBC cut its forecast for Chinese growth this year and next to 7.4 percent.
Ken Courtis at Next Capital Partners said a slower China may be a price worth paying if it results in an economy with more even growth that’s less prone to shocks. Courtis said China is taking the tough medicine to squeeze excesses out of the system, and you can’t build long-term, sustainable growth if the system is not cleansed of excesses.
Citigroup said China’s private debt rose to 168 percent of GDP in Q3 2012 versus 119 percent 4 years previously – a rise bigger than those of the US and euro area in their pre-crisis years.
David Loevinger at TCW said slowing the growth in credit now increases the prospects for strong and steady growth later – good for China and the world.
Manoj Pradhan at Morgan Stanley said accelerations in the US and Japanese economies puts the world is in a much better position to absorb a slowing and more-balanced China.
Tim Drayson at Legal & General Investment Mgmt said if a slowing China helps ease commodity prices it could help reduce inflation elsewhere in the world which is eating into consumers’ spending power.
Nobel laureate Michael Spence would be surprised if China allows this to go on much longer.
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